FAQ: The ORMI Indices

Maruti, Jiseki & the novel ORMI India 10
Many times we have been asked why ORMI India 10 and not just ORMI India 30. We have explained a few aspects regarding the difference between the two on the launch day.
However member’s interaction during webinars and continued investor feedback throws up more interesting comparisons.
Correlations; The ORMI 30 is not going to be all mid cap or large cap because small caps are more prone to extremity than mid-caps and large caps. This is the reason for ORMI 30 to deliver more than ORMI 10 over the last 5 years. Doubling or tripling average market index return needs a low correlation rather than a high correlation.
ORMI 10 on the other hand is a selection of components from CNX 100. This means we have high correlation with blue chip index and less small cap components. No wonder ORMI 10 outperformed NIFTY with more than 30% returns, while ORMI 10 lagged behind and could not catch up with the last 6 month speedy NIFTY.
Should I compare ORMI India Indices with arbitrage products? On a return scale yes, the comparison seems appropriate. But if you look at the resource intensive arbitrage with a passive ORMI, somewhere a 1.5% per month return on Arbitrage still dulls in comparison to ORMI India 30 0.8% per month this year. Keep in mind low correlations are a double edged sword. This is the same Index which delivered more than 5 times the NIFTY from 2006.
Review levels. System generated review levels. In keeping up with the tradition of automating technical patterns and levels, here we have modelled resistance and supports based on previous intermediate multi week trends. To improve signal quality we have modelled review levels based on key resistance and support levels. The entry for ORMI only happens if the price is either above a key support or above a key resistance. The review levels are classified with different widths, the widest one is the most recent, closer to price action and vice versa.
“Leverage is a minefield”, said a CFD and foreign exchange trader. Passive indexing is coming off age as investors realise that search for hot hands is elusive. Moreover, choppy markets stress the trader. Leverage is for the professional and needs superior risk management.
Subjective and objective; we really appreciate all in-depth macro-economic research, sector analysis and all the investigative research that goes into capital market research generation. We have read a lot of this awesome stuff. However we think this painstaking hard work is more subjective than objective. Sooner or later one subjective error brings the hard work structure down.
We at Orpheus are forecasters who resist from forecasting and stick to risk management. And we believe this is the only way to manage and create wealth. For all the members who are fearful of stock market investing into 2013 should understand that ORMI Indices not only understand seasonality, risk and allocation but they also go cash. So in case we are talking about a negative year, ORMI Indices will indicate and exit out of respective holdings.
This is what we said on 25 Oct. “Why does ORMI India 30 remains ‘all invested’?”
As of now this has not been the case and we don’t think we should try to outrun the system by questioning why 75% of ORMI India 30 is invested.
On and off model – discretion balance; well surprisingly our members who followed the ORMI entries and exits religiously are faring better than the ones who used some discretion. We have realised that faster an investor goes on the model the better she (he) can simulate ORMI Indices performance. ORMI India 10 is easy to simulate compared to ORMI India 30. But then ORMI India 30 rewards you for the trouble.
Tracking Error; the tracking error dissipates if you observe the large holding periods ORMI Indices components have. 50 to 90 days is simplified investing. This marginalises tracking error for a portfolio tracking ORMI Indices.
Why Maruti is in ORMI India 10 and out of ORMI India 30? The selection process, the group, the querying system and the character for the two ORMI Indices are different. The overlap is coincidental. Currently Maruti is running in ORMI India 10 and has delivered 10% over 29 days.

Mukul Pal, is a Chartered Market Technician, MBA Finance and a member of the reputed Market Technicians Association (MTA). He has more than a decade of Capital Market experience dealing with derivatives and global assets. He has worked for Bombay Stock  Exchange, multinational Banks and brokerage houses in leading research positions before starting on his own in 2005. He is the President of the MTA Central and Eastern European Chapter.